Living Standards & Income Distribution
Reasons for Differences in Living Standards and Income Distribution
Reasons for Differences in Living Standards and Income Distribution
There are many reasons that cause differences in living standards and the income distribution within and between countries
Economic system: a mixed economy provides the highest quality of living standards. There is much debate on how much government planning there should be. However, countries in Scandinavia with a more mixed economic system score very highly on HDI and living standards. With completely free markets (unchecked capitalism), wealth inequalities increase exponentially. With planned economies, shortages abound
The Government: the values of a government influence their economic agenda, tax system and government spending. Governments are more easily held accountable by the citizens in countries with a low level of corruption
Corruption: significantly undermines quality of life and the standards of living
Tax system: most countries have a progressive tax system for corporate and personal income tax. However, there can be many indirect taxes which completely change the quality of life for the poorest households
Productivity levels: differences in skills result in difference in productivity and higher levels of productivity are rewarded with higher wages, which leads to a better standard of living
Size of the population: more densely populated countries or cities face more challenges. A larger population can mean higher tax revenues but at the same time, government expenditure on services is spread across more people often resulting in less government spending/capita
Education levels: These directly influence productivity and wages
Inflation: Tends to impact poorer households more as any increase in general price levels represents a larger absolute value of their wages when compared to wealthier households
Regional differences: Many countries have historically poor areas, as well as wealthier ones. Poverty in certain regions can be much higher
Personal freedoms: religious, economic, personal, political and civil freedoms improve the quality of life within a nation